Tuesday, September 15, 2009

State Corporations Act a messy law that should be scrapped

The embattled chief executive of the Kenya Bureau of Standards, Mr Kioko Mang’eli, must be a very influential and politically- well-connected parastatal chief.

In September, 2007, an investigation by the Inspectorate of State Corporations came up with damning revelations about the manner in which he was conducting the affairs of this critically strategic institution. Nothing happened to him.

If you follow the goings-on at the bureau closely, you will be aware that relations between the chief executive and the board, including the chairman — Mr Aggrey Chabeda — have been frosty.

The directors resented the fact that the chief executive was making important decisions without reference to them.

Early this year — and as the board was planning to discuss renewal of his contract — most of his critics within the board were suddenly replaced despite the fact that their term of office had not expired. Those whose terms were prematurely terminated included, Mr StanleyWere, Mike Jobita, Gerald Muli, Stanley Were and Moses Nyarwewe.

Whether the removal of these directors was a mere coincidence is an open ended question. But to a close observer, the timing was as if events were being carefully manipulated to set the stage for the renewal of his contract.

When he was appointed CEO of the bureau to replace the late Eng J. M. Masila, the communication came through a gazette notice. The job was neither advertised, nor was the job competitively procured by the board as is the practice under the State Corporations Act.

The saga over Mang’eli’s sacking by the head of public service Franncis Muthaura, has raised fundamental issues. Who is the ultimate authority over parastatals, and did Muthaura exceed his mandate?

You have to look at the whole corporate governance system for parastatals to appreciate the bigger picture. Too many institutions and government departments share power and responsibility over the governing of parastatals.

The minister of the parent ministry is the appointing authority — in Mr Mang’elis case, the minister for Industrialisation, Mr Henry Kosgey.

The CEO signs a performance contract with the board — more or less operating as his employer — comprising appointees of the minister.

But under the State Corporations Act, the President has powers to — at any point time — fire the whole board. Mark you, the President, and lately, the Prime Minister, are also the appointing authorities for ministers.

AS CEO OF A PARASTATAL, YOU CAN wake up one day and find that your parent ministry has been changed. It is the President who assigns responsibility over parastatals to different ministries.

And, the PS to the Treasury — technically the sole owner of all parastatals under the Permanent Secretary to the Treasury Act and the Exchequer and Audit Act — must approve all budgets.

The State Corporations Advisory Committee under the Office of the President wields extensive powers over the running of parastatals. Two other critical institutions have a say in the management of parastatals, namely, the Inspectorate of State Corporations and the Efficiency Monitoring Unit.

Teams of auditors from these departments can be dispatched to a parastatal at any time, and without reference to the minister. Damning findings by the auditors have often been followed by either dissolution of the boards or the sending home of the CEO.

Clearly, the corporate governance system for parastatals is a messy affair. Which is why the President can transfer an incumbent commissioner of police to the Post Office and appoint him Postmaster-General even when it is clear to everybody that the man hasn’t a clue about the running a modern post office.

During the advent of Mwai Kibaki’s administration, several parastatal chiefs were replaced despite the fact that some of them possessed valid contracts that had not expired. Just the other day, there was a huge uproar over the renewal of Mr George Muhoho’s contract as CEO of the Kenya Airports Authority.

Which brings me to a point I have made before. If we want parastatals to be run efficiently, we must go back to the idea of introducing a completely new corporate governance system.

This “parent ministry” idea should be dropped, and meddling ministers and their permanent secretaries kept very far away from the affairs of parastatals.

The limited liability company is one of man’s greatest inventions. Companies run well because the shareholder does not appoint the CEO.

The board steers, while the management of the company rows the boat. The parastatal sector in Kenya is in a mess because the shareholder wants to steer and row the boat at the same time.